Since the explosion of the Deepwater Horizon drilling rig on April 20, 2010, individuals and corporations with financial interests in the Gulf of Mexico have been watching and waiting to see the extent of damage caused by the oil flowing from the MC252 well. British Petroleum (BP) has reported that it has already spent nearly $1 billion on cleanup efforts, and that figure will continue to climb well beyond the date when the leaking well is finally capped. Broad legal ramifications are certain to result as businesses and property owners are affected by the spill. Based on analysis of earlier oil spills, Waller Lansden has identified some likely areas of legal concerns, and the following is a brief overview of key issues related to the Deepwater Horizon incident. In the weeks ahead, we will provide more detailed analysis as events unfold.

Litigation

Direct litigation against British Petroleum and other entities involved with the Deepwater Horizon explosion are being filed all across the country at a rapid pace. These actions include putative class actions seeking recovery for personal injury, business and property damage. BP hopes to have the U.S. Judicial Panel on Multidistrict Litigation combine these lawsuits in Houston, while the impacted individuals and businesses seek to have the lawsuits combined in New Orleans.

As claims are filed and denied, individual cases representing the damages suffered by one individual or one business will be brought. Much of the harm caused by the oil is not susceptible to class actions and will have to be evaluated and proven one at a time.

In the near future litigation will also emerge related to secondary issues such as business interruption insurance coverage. Will insurance companies assert these claims are excluded from coverage under standard pollution exclusions? As individuals and companies attempt to back out of pending real estate transactions or even business acquisitions, lawsuits are likely to follow.

The U.S. Department of Justice has launched civil and criminal penalty investigations into all entities involved. If the government follows the course taken in response to the Exxon Valdez spill, the investigation will involve possible Clean Water Act, Refuse Act, and Migratory Bird Treaty Act violations.

Labor

The tourism and fishing industries and their service providers and suppliers will layoff employees. As employment is reduced, employment-related claims, such as discrimination charges and workers' compensation claims, generally increase. Likewise, issues concerning the compensation of those who embark on the Gulf Coast to assist with remediation efforts are likely to arise. Federal agencies will scrutinize contractors to ensure that employees are not improperly classified as independent contractors. The U.S. Department of Labor has already published information for workers of oil spill response and clean up, including how to file a complaint concerning any of the laws enforced by the DOL.

Finance and Restructuring

The direct impact on tourism and fishing industries as well as the overall real estate markets along the coast in states affected by the spill could result in chain reaction of loan defaults as area businesses and property owners struggle with the spill's aftermath and its impact on revenue. These issues will also reverberate through related sectors that service or supply the tourism and fishing industries. The real estate market, already hard hit by recent economic issues, will likely be dealt another severe blow by the loss of property value and diminished rents. As a result, commercial and residential lenders in those markets could face a dramatic increase in troubled loans that will need to be addressed through forbearance agreements, restructuring or other means.

Environmental Issues

BP reports that is has spent almost $1 billion on clean up efforts to date. In addition, BP has paid $36 million so far to settle economic loss and damage claims under the federal Oil Pollution Act, which was passed following the Exxon Valdez oil spill. According to BP officials, more than 26,000 claims already have been submitted. While BP is responsible for all oil removal costs, the Oil Pollution Act sets a $75 million cap on all other liability. Legislation has been introduced that would raise this cap. Under present law, the cap can be removed if it is determined that the spill was the result of gross negligence, misconduct or violation of certain federal regulations.

Property Damage and Recovery Claims

BP has established a procedure for filing claims related to bodily injury or illness, property damage, and loss of income. Individuals and businesses that incur removal costs or suffer damages, must first make a claim to BP and/or Transocean.

In addition, The Oil Spill Liability Trust Fund (OSLTF) was authorized in 1990 with the enactment of the Oil Pollution Act, and provides for $1 billion per incident to pay for, among other things, uncompensated removal costs, damages, natural resource damage assessments and restorations.

Waller Lansden will continue to monitor events and issues related to the Deepwater Horizon spill. For more information, please contact us at 800-487-6380.

The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance.